Faysal and Alfalah on a roll

If two ride on a horse, one must ride behind. But, in the case of the local banking industry, the mid-sized banks are all set to ride along with the industrys market leaders. The two mid-sized banks; Bank Alfalah(BAFL) and Faysal Bank(FABL), posted impressive growth in operating revenues, aided by improvement in net core income and non mark-up revenues. Net interest income strengthened on the heels of a higher KIBOR, expansion in asset base and the banks continuous efforts to reduce cost of funds. Bucking an industry-wide trend, FABLs investment portfolio shrank by 9 percent during the first nine months of CY11 to Rs78 billion, as of September 30, 2011. While its advances portfolio increased by 11 percent to Rs148 billion. However, BAFLs investment base surged by 27 percent to Rs144 billion as of September 30, 2011. BAFLs gross spread ratio improved by 5 percentage points, year-on-year, to 41 percent in 9MCY11. In the same breath, FABLs gross spread ratio enhanced to 32 percent from 30 percent. FABL witnessed net reversal against non-performing loans and diminution in value of investments during 9MCY11, largely due to recovery in asset portfolio acquired from RBS. Similarly, BAFLs net provisions against loans and advances eased down in the period under review, but the bank witnessed significant growth in provision for diminution in value of investments, stemming from investment in subsidiary companies and associates. Non mark-up income gained on a year-on-year basis. FABL benefited from the RBS merger; its non-interest income increased year-on-year despite a loss of Rs327 million on the sale of securities booked in 9MCY11 compared to a gain of Rs1.13 billion, arising from settlement of NIT LOC, in 9MCY10. BAFL has managed to check growth in its non mark-up expenditure, which increased by around 13 percent, year-on-year, close to the prevailing rate of inflation. The acquisition of RBS operations, along with adoption of RBS administrative staff, has more than doubled FABLs non-mark-up expenses. BAFLs operating revenues to expense ratio stood at 1.65 in 9MCY11, as opposed to 1.22 for FABL. BAFLs bottom-line growth surpassed that of other industry leaders. On the other hand, FABLs bottom-line posted a decline in the face of higher operating revenues, owing to higher non mark-up expenses and the capital gain booked on settlement of NIT LOC same period last year.

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                                        BANK ALFALAH                             FAYSAL BANK
Rs(mn)                                 9MCY11   9MCY10      chg    9MCY1     9MCY10      chg
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Markup Earned                         32,111    27,931      15%    21,345    13,359      60%
Markup Expensed                      (18,984)  (17,983)      6%   (14,459)   (9,383)     54%
Net Markup Income                     13,127     9,948      32%     6,885     3,976      73%
Provisioning                          (1,960)   (1,959)      0%        82      (934)   -109%
Net Markup income after provisions    11,167     7,990      40%     6,967     3,042     129%
Other income                           3,949     3,375      17%     3,169     2,430      30%
Operating revenues                    17,076    13,323      28%    10,054     6,406      57%
Other expenses                       (10,327)   (9,114)     13%    (8,258)   (3,827)    116%
Profit before taxation                 4,789     2,251     113%     1,878     1,645      14%
Profit after taxation                  3,002     1,502     100%     1,293     1,808     -28%
EPS                                     2.22      1.11               1.78      2.47
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Source: Company Accounts